Lecture Advanced accounting (6th Edition): Chapter 18 - Jeter, Chaney

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Lecture Advanced accounting (6th Edition): Chapter 18 - Jeter, Chaney. Chapter 18 - Introduction to accounting for state and local governmental units. In order to learn about accounting for state and local governments you must learn a whole new vocabulary – many different funds. In addition, the whole field is experiencing change with the implementation of GASB’s Statement No. 34, which became effective in 2001. The process of changing governmental reporting to make it easier for outsiders to use just makes learning how to do it more difficult!
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Lecture Advanced accounting (6th Edition): Chapter 18 - Jeter, Chaney. Chapter 18 - Introduction to accounting for state and local governmental units. In order to learn about accounting for state and local governments you must learn a whole new vocabulary – many different funds. In addition, the whole field is experiencing change with the implementation of GASB’s Statement No. 34, which became effective in 2001. The process of changing governmental reporting to make it easier for outsiders to use just makes learning how to do it more difficult!.

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Advanced Accounting Jeter Chaney Introduction to Accounting For State and Local GovernmPrepared by Sheila Ammons, Austin Community College Learning Objectives • Identify the issues involved in developing standards for nonprofit organizations. • Describe the broad categories of government fund entities. • Distinguish between a general fund and a special revenue fund. • Explain the use of a capital projects fund. • Describe the purpose of a debt service fund. • Explain the use of a permanent fund. 2 Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Learning Objectives • Distinguish proprietary funds from government funds. • Describe where capital assets and long­term obligations are reported in government financial statements. • Describe the changes in reporting requirements under GASB Statement No. 34. • Explain the benefits of government­wide statements. • Describe the types of interfund activities. 3 Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Governmental Accounting • GASB’s Statement No. 34, issued June 1999, requires: – Financial statements using government­wide (entity­ wide) approach. (This does not eliminate traditional fund accounting.) – Statements emphasizing major funds. – Management’s discussion and analysis (MD&A). • GASB Statement No. 34 requires “full accrual” accounting for all government­wide statements (i.e., flow of economic resources approach). 4 Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Reporting Model: Minimum Information Required Government­wide Statement of net position Statement of activities Fund Financial Statements Governmental funds: Balance sheet Statement of revenues, expenditures, and changes in fund balances Reconciliation to government­wide statements Proprietary funds: Balance sheet or statement of net position Statement of revenues, expenses, and changes in net position Statement of cash flows—direct format Fiduciary funds: Statement of fiduciary net position Statement of changes in net position Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. History of Governmental Accounting Standards • GASB was established (1984): – Separate board under oversight of Financial Accounting Foundation (FAF). – Responsible for establishing financial and reporting standards for governments. – GASB endorsed prior statements and interpretations of the NCGA, as well as standards embodied in the 1974 AICPA Industry Audit Guide. – Pronouncements of the GASB are codified. The codification is update LO 1 Issues involved in developing standards. Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. History of Governmental Accounting Standards Hierarchy of Standards –GASB Statement No. 55 establishes the hierarchy used to establish generally accepted reporting standards for all state and local government­owned entities, including government­owned colleges and universities, health care providers, and utilities. – The GASB and the FASB each has primary responsibility for setting standards for entities under its jurisdiction. – Pronouncements ofJ oWLO 1 Issues involved in developing standards.he The Structure of Governmental Accounting • Eleven Categories of Fund Entities – Governmental Funds (expendable)— – Focus on sources, use, and balances of current financial resources. – General Fund – Special Revenue Funds – Capital Projects Funds – Debt Service Funds – Permanent Funds LO 2 Broad categories funds. Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. The Structure of Governmental Accounting • Eleven Categories of Fund Entities (continued) – Proprietary Funds (nonexpendable)— – Focus on determination of operating income, changes in net position, financial position, and cash flows. – Enterprise Funds – Internal Service Funds LO 2 Broad categories funds . Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. The Structure of Governmental Accounting • Eleven Categories of Fund Entities – Fiduciary Funds – Reports assets held in a trustee or agency capacity for others. – Focus on net position. – Pension Trust Funds – Investment Trust Funds – Private­Purpose Trust Funds – Agency Funds LO 2 Broad categories funds . Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Governmental Fund Entities General Fund • Used to account for and report all financial resources not accounted for and reported in another fund. Special Revenue Fund • Used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. – The term proceeds of specific revenue sources establishes that one or more specific restricted or committed revenues should be the foundation for a special revenue fund. LO 3 General fund vs special revenue fund. Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Governmental Fund Entities • In special revenue funds, as in the general fund, the • following steps are taken: – A budget is established and recorded in the accounts. – Encumbrances are used to control budgeted expenditures. – Fixed assets are only reported on government­wide statement. – Depreciation is not recorded. – Long­term debt is onlyLreported onsgovernment­wide Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Governmental Fund Entities Capital Projects Fund • Used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets. Capital project funds exclude those types of capital­related outflows financed by proprietary funds or for assets that will be held in trust for individuals, private organizations, or other governments. LO 4 Capital projects fund. Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Governmental Fund Entities • Capital Projects Fund – Resources to acquire or construct major capital facilities. – Resources for the acquisition include – proceeds of long­term debt issues, – grants or payments from other governmental units, – funds from private sources, – transfers of current revenues lfrom other Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Governmental Fund Entities – Capital Projects • Exercise 18­12: The town of Aberdeen authorized a fire station to be built at an estimated cost of $150,000. On January 1, 2015, 6% bonds with a par value of $150,000 were authorized and issued. Any difference between the par value of the bonds and the proceeds from their sale is transferred to the Debt Service Fund. The following transactions relating to the Capital Project Fund occurred during 2015. – Encumbrances were recorded in the amount of $150,000. – Proceeds from bond issue were received in amount of $155,000Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Governmental Fund Entities – Capital Projects Exercise 18­12: Prepare the journal entries necessary in the Capital Projects Fund to record the transactions and events. 1. Encumbrances were recorded in the amount of $150,000. Encumbrance 150,000 Fund Balance ­ Assigned (encumbrances) 150,000 2. Proceeds of $155,000 from bond issue were received. Cash Bond Issue Proceeds 155,000 155,000 LO 4 Capital projects fund. Copyright © 2015. John Wiley & Sons, Inc. All rights reserved. Governmental Fund Entities – Capital Projects Exercise 18­12: Prepare the journal entries necessary in the Capital Projects Fund to record the transactions and events. 3. Premium was transferred to the Debt Service Fund. Transfer to Debt Service Fund 5,000 Cash 5,000